For the most part, home buyers can’t use the tax credit as an automatic down payment, although “tax credit funds can be used for the basic down-payment requirement on an FHA-insured loan only when it’s handled through a state housing finance agency. If the home loan is handled through an FHA lender, the tax credit can be “used to add to the down payment above the 3.5 percent required amount. It can also be used for closing costs.

Taxpayers need to wait until they’ve actually filed their income tax return to receive the tax credit. The home buyer credit reduces one’s tax liability on a dollar-for-dollar basis, and if the credit is more than the tax you owe, the difference is paid to you as a tax refund.

This is one of the biggest misconceptions out there. If you pay $50,000 for a home, you will not get the full $8,000 tax credit. In fact, the top credit for homes is 10 percent of the residence’s purchase price.

Taxpayers who claim the credit must use the home as a principal residence for the next three consecutive years. If you sell the house before living in it for three years, you may have to pay back the tax credit. Qualified military service members who sell or move from a tax credit home within three years of the initial purchase, due to official extended duty, are exempt from paying back the money.

A first-time home buyer is defined as someone who hasn’t owned a principal residence in the past three years. If you have owned a home before but haven’t owned one recently, you may still qualify. If you currently own a home, the tax credit was recently amended to include move-up buyers. As a move-up buyer, you may qualify. Vacation homes and rental properties are not eligible.

The home buyer credit is available to higher income taxpayers. The home buyer credit phases out over higher modified adjusted gross income levels, making the credit available to a much bigger pool of buyers. The tax credit expansion can give you incentive to start looking. But, act quickly and carefully to ensure you receive the full benefit.